Bonds Fall for 2nd Straight Session

Published 7:00 pm, Thursday, February 28, 2002

Bond prices fell for a second consecutive session Friday, as another batch of economic data suggested the recession has probably ended.

The price of the benchmark 10-year Treasury note fell 1 7/32 points, or $8.44 per $1,000 in face value. Its yield, which moves in the opposite direction, rose to 4.98 percent from 4.87 percent late Thursday.

The 30-year Treasury bond also slipped, falling 1 7/32 points point to yield 5.50 percent, up from 5.42 percent a day earlier, according to Moneyline Telerate.

The Commerce Department reported Friday that consumer spending, which accounts for two-thirds of all U.S. economic activity, rose 0.4 percent in January.

At the same time, Americans' income, including wages, interest and government benefits, also increased by 0.4 percent, the largest advance in six months.

Finally, Institute for Supply Management, formerly known as the National Association of Purchasing Management, reported that its index of business activity rose for the first time in 18 months moved up into a zone that signifies growth.

The group's index jumped to 54.7 in February from 49.9 in January, suggesting the battered manufacturing sector, hardest hit by the recession, is pulling out of a long slump. An index above 50 signifies expansion, while a figure below 50 shows contraction.

But the positive economic reports lifted key stock markets. The Dow Jones industrial average closed up 263, or 2.6 percent, at 10,369, the Dow's highest closed since Aug. 27. The Nasdaq soared 71 points, or 4.1 percent, to 1,803, claiming its biggest point win of the year.

Bonds tend to do better in a slowing economy when interest rates are trending lower, making the value of fixed-income investments more attractive.

In other bond trading, the benchmark 2-year note declined 1/4 point, to yield 3.19 percent, up from 3.05 percent on Thursday. Intermediate maturities fell between 3/8 point and 3/4 point.

Yields on one-month Treasury bills were 1.76 percent as the discount rose 0.01 percentage point to 1.74 percent. Yields on three-month Treasury bills were 1.77 percent as the discount rose 0.03 percentage point to 1.75 percent. Six-month yields were 1.88 percent, as the discount rose 0.04 percentage point to 1.85 percent.

Yields are the interest bonds pay by maturity, while the discount is the interest at which they are sold.

The federal funds rate, the interest on overnight loans between banks, held steady at 1.81 percent.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds fell to 104 15/16 on Friday, from 105 5/16 on Thursday. The average yield to maturity rose to 5.27 percent, compared with 5.25 percent on Thursday.